Are Technology Leaders Doomed to Fail?

It seems that every high-tech company that has ridden a wave of innovation to industry leadership eventually faces a cliff that leads to doom and gloom.

It seems that every high-tech company that has ridden a wave of innovation to industry leadership eventually faces a cliff that leads to doom and gloom.

History is riddled with tech companies whose names were once synonymous with innovation. These firms drove the industry into uncharted areas, companies like RCA, IBM, Texas Instruments, Motorola, and Nokia. While many of these companies still exist, they are nowhere close to their former glory.

And, this cycle seems to have no end. Just as one company rises to dominance, another comes behind it to challenge that dominance. As an example, not a day goes by without someone questioning the future of Apple, a company that has shaped the industry as we know it. So, if this trend is so predictable, why can't anyone manage to break the cycle?

After more than 25 years in the industry, working with and for many of the companies mentioned in this article, I've come to realize that the answer has more to do with the life cycle of a company than its ability to innovate. As companies ride that wave of innovation, they grow and expand. Since these companies rose on the heels of innovation, they continue to focus on innovation. This all bodes well for a technology company looking to grow and to drive the technology industry. Unfortunately, their increasing size and dominance eventually works against them.

As companies grow, they tend to become less nimble to market changes, and rightfully so. If your company has spent years and millions or even billions of dollars developing a technology, you are unlikely to abandon it at the first sign of trouble. You are going to continue to invest and do your best to use your industry relationships and influence to push the industry in the desired direction.

This leads to the first problem -- arrogance. The market leaders eventually believe that they can drive the industry the direction they want it to go, especially if they throw billions of dollars at it. While this strategy may work during the initial stages of change, it eventually faces diminishing success. IBM, Microsoft, and Intel have all tried to reroute the PC industry at one time or another to no avail.

This growing company size and market dominance also leads to the second issue -- protectionism. As companies reach that dominant position and have less market growth potential, they naturally look to maintain that market position through the implementation of proprietary technologies or heavy-handed enforcement of patents. They always justify it as just reward for their investment. But it does more to subvert innovation and competition, ultimately driving the industry to look for other solutions. The technology industry thrives on enablers and fights restrictions.

Despite these factors, there is one factor that inevitably escapes the grasp of every technology leader: missing a major market transition. Motorola, one of my former employers, is a great case in point. Motorola was a leader in developing new markets and technologies for close to 100 years. Yet, the company failed to maintain a leadership position in any of those markets.

Being an engineering company, it always focused on the technology and not on the changing dynamics of the market. In the end, the company always delivered great technology, but that didn't always translate to market success. Smaller, more nimble companies would come in behind it and take the market in a different direction.

Unfortunately, every high-tech market leader eventually finds itself in this position. The signs are visible even for the market leaders today. Google missed the social networking trend, Microsoft missed the Internet surge, Intel missed the mobile revolution, and Apple is being challenged by open-source solutions.

This is not to say that the future is all doom and gloom for technology leaders. The successful ones still find new areas to expand and lead. Often, this requires companies to scale back and focus on either existing segments or new segments where the company can establish a leadership position. However, they seldom are the true industry innovators or market leaders that they once were. The next generation of technology leaders will be those that enable the industry, much like those that came before them.

— Jim McGregor is the founder and principal analyst of IRIAS Research.

I believe that the principal force at play here is the Law of Large Organizations, which states:

In any Large Organization, Loyalty will always be rewarded over Competence.

Once a Large Organization reaches a certain size, innovation will be squashed as Disloyal and Unmutual, and people capable of technical innovation will go elsewhere. Then it's just a matter of time before the money runs out.

A so-called "technology leader" has a great idea, that works at the moment the great idea was hatched. This does not translate to the "leader" having an infinite stream of great ideas, and not prematurely, but at precisely the moment when they are indeed great.

Things change, and financial obstacles get in the way too. It's not just great ideas.

Take a look at Global Crossing. You'd think, laying fiber all around the world, for communications, would be a no-brainer. And they went under. Look at Blackberry. E-mail on the run. And the world has changed, and they're struggling.

Apple didn't reshape the whole industry. Apple was on the ropes, until they invented this fashionable smartphone. And then the derivative tablet. Basically ONE fundamental idea. Those came at precisely the right time, when improved 2G and then 3G had just become available. But who's to say that having a great idea at the right time means you'll have an endless string of great ideas, always at the right time?

Thanks for detail explanation. But if you closely examine this, it is also applicable to each person, family, country, sports team etc. This is how physical and mental demands work and this is what it should be.

Thank you for comments. I agree with them all. Apple's run actually began with the iPod and has run through the iPhone. How long will it last, no one knows, but there are many factors that have contributed to Apple's success.

I believe that the transition to connected devices or IoT will be another major inflection point in the electronics market and the new generation of technology leaders will be those that can change the computing paradigm once again.

Thanks for your article, but I disagree. Success is not always defined by what you read in the newspapers. For example, IBM may not be making headline news, but every time a company makes an IBM compatible PC, IBM makes money and they still sell a large amount of mid-range computer systems. Please visit some of the government offices in Washington, DC.... Like the IRS. Oops! And the company Texas Instruments have the rights to so many patents that I cannot even make a list anymore. My point is simple. These companies may not be headline news today, but they are still making money from other companies because they are using their products or ideas. The bottom line is this, on the end of the day, a good balance sheet is all that matters.

As there are the Leaders who introduce cutting edge technologies in the market, there is a second category of entrepreneurs which are called Powerful Followers. These entrepreneurs do not have original ideas but are very good at capitalizing on already ripe market created by the Leaders. I would say Samsung is like a powerful follower capitalizing on the smart phone market created by Apple.

In my opinion the technology leaders do not linger onto the same product for a long time, they soon switch over to yet another innovative product. If they do not do that then they are sure doomed to fall

One minor point. Apple is moving out of the ranks of 'Technology' company to the ranks of Consumer Durable, maybe Consumer Asperational. Why does that matter? The customers are morphing from techies to consumers. The average MacBook, iPad, or iPhone users needs a tool, and probably doesn't care about 64bit processors, etc. These customers buy design, functionality, and support/service. They are willing to pay for it. Similar to the higher end watch manufacturers of past generations. The mainstream products try to sell 'technology' and will be caught in the downward spiral of low margin products.

Window hardware in a zero margin business. Apple still maked decent margins in the laptop and desktop market, despite flat to down sales for everyone.

The articles makes many good points. But is missing another important factor.

Initially the technology leaders are focused on technology and operations. Once successful and larger, attention shifts to conforming to the myths promoted by the financial markets. The result is shift away from technology-centric operations. Often the divergence is masked by the size of the operations and financial leverage. But when multiplicity of negative factors arrise, if the organization has conceded technology/market leadership, trouble follows.

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